Labour has removed the current VAT exemption and business rates relief for private schools. This revenue will fund 6,500 new teachers, teacher training, work experience, career advice, and various other educational projects. Here’s a comprehensive overview of Labour’s plans and how they might affect you.

Labour’s Plans for Private School Fees

What Is a Private School?

A private school, also known as an independent school, charges fees for pupils to attend. These schools don’t have to teach the national curriculum but must undergo inspections. Around half of these schools have charitable status.

Some specialise in teaching children with special educational needs and disabilities (SEND), and local authorities sometimes fund attendance at these schools for children with Education, Health and Care (EHC) plans.

How Will Removal of the VAT Exemption Work?

At present, independent schools deemed as ‘eligible bodies’ are exempt from charging VAT on fees for education and related services such as boarding, trips, and catering. The new legislation will apply VAT to tuition and boarding fees but will not affect nursery care, wraparound childcare, school meals, holiday clubs, and part-time classes like music and drama.

The VAT legislation, originally laid down in the EC Directive 2006/112/EC and implemented in the UK under the VAT Act 1994 (retained after Brexit), will require careful adjustment. The VAT charge will apply to both UK and overseas students and will be effective across the UK.

How Will the Changes Impact Family Finances?

Increased School Fees

The addition of 20% VAT on tuition and boarding fees will significantly increase the cost of private education. Families with children in private schools will need to budget for this additional expense.

Local Authority Funded Pupils

For children whose education is funded by local authorities, the VAT can be reclaimed by the authorities. However, for parents without such funding, the financial burden will be substantial.

Potential for Legal Challenges

There is a possibility of legal challenges against the removal of the VAT exemption. However, no retrospective VAT charges will be applied, as confirmed by Chancellor Rachel Reeves. This decision is likely due to the legal complexities involved.

Can You Prepay School Fees to Avoid VAT?

Parents considering prepaying school fees to avoid VAT should note that Labour’s policy includes measures to prevent such actions. Prepayments made on or after 29 July 2024 for terms starting on or after 1 January 2025 will be subject to VAT. This anti-forestalling measure ensures that the new VAT charge cannot be circumvented.

Tax-Free Childcare and Private School Fees

Tax-free childcare, which provides up to £2,000 annually to help with childcare costs, can be used to cover certain costs at private schools. According to Revenuebenefits:

• Tax-free childcare can cover costs for children under compulsory school age.
• It can also cover costs that do not include compulsory education.
• Costs for childcare provided outside school hours are also eligible.

If the costs are a mix of qualifying childcare and compulsory education, only the portion related to qualifying childcare can be paid for using the Tax-Free Childcare account.

Your Next Steps?

The introduction of VAT on private school fees will significantly impact family finances, especially for those who do not receive local authority funding. With a 20% increase in tuition and boarding fees, families will need to adjust their budgets accordingly.

Stay informed about the specifics of these changes and consider seeking advice from financial professionals to navigate this new landscape.